Macerich Gives Santa Monica Place Back to Lender

Macerich, one of the largest mall REITs, is handing back the keys for a property close to home.

The Santa Monica-based REIT is giving Santa Monica Place back to its lender after defaulting on a $300M loan backed by the struggling 527K SF open-air mall, according to a report in the Santa Monica Daily Press.

The loan originally was set to expire in December when Macerich negotiated an extension with lender Wells Fargo. The REIT defaulted on the loan in April.

“It was pretty clear that Santa Monica has continuing issues and it is under water. Ultimately, trying to figure out the end game was just too obscure,” Scott Kingsmore, Macerich’s CFO, told Women’s Wear Daily.

According to WWD’s report, the broker valuation for Santa Monica Place is about $265M, significantly less than the debt. Macerich bought the property in 1999 for $130M and spent $265M renovating the mall in 2007.

The multi-story mall, located at the end of the Third Street Promenade at 395 Santa Monica Place, a block from the Santa Monica Pier, saw some of its largest tenants depart during the pandemic.

In 2021, Bloomingdale’s and ArcLight Cinemas both closed their doors at the mall. By early last year, more than half of the mall was available for lease. In recent months, Santa Monica Place has been staging pop-up exhibits, including a Barbie tie-in, to try to draw more foot traffic to the mall, the report said.

Macerich reported a loss of nearly $127M in Q1 2024. In a Q1 earnings call with investors at the end of April, Kingsmore said the REIT had been negatively impacted by the bankruptcy of Express, a retailer with 23 stores at Macerich properties. The CFO also disclosed the difficulties at Santa Monica Place during the call.

“We continue to face challenges in the broader marketplace here in Santa Monica,” Kingsmore said. “It impacts our progress. It impacts tenancy. We’ve got a challenging underlying capital structure and that all led us to making the decision to default on the loan in early April.”

Designed by architect Frank Gehry, Santa Monica Place opened in 1980, aiming to become a major destination on the Third Street Promenade. The renovation in 2007 transformed the mall into an open-air center with retail shops and a food court.

Vice Mayor Lana Negrete told the Daily Press she hopes negotiations between Macerich and its lenders will continue and that the REIT will continue to operate Santa Monica Place.

“This is an opportunity for us to take a hard look at our retail spaces and engage closely with property owners to see what is needed to bring in retailers while bringing originality to the promenade,” Negrete told the newspaper. “The city is working on safety and our downtown police unit has been very present on 3rd street.”